Cash Pooling – What to look out for





Cash pooling refers to the needs-based distribution of liquid funds within a group. Surplus cash of solvent group companies is bundled into a central “pool” (an operating company) and then distributed to the group companies in need of liquidity. The aim is to enable flexible liquidity balancing between the individual companies in the cash pool, in order to ensure the short- to medium-term solvency of all group companies.

New Ruling of the Austrian Supreme Court

In a very recent decision, the Austrian Supreme Court (2.5.2019, 17 Ob 5/19p) has reviewed a customary cash pooling agreement against the background of the prohibition of the return of contributions. The Supreme Court has stated that the assumption of a default risk by an individual group company is particularly critical because the individual pool participants use their credit balances to secure virtually the entire balance of the pool (i.e. the liabilities of all participants).

What to Do?

In order to comply with capital maintenance rules (and to avoid directors’ liability), the cash pooling agreement should therefore also regulate the content of liquidity flows between the pool companies. For example, it is advisable to specify the credit lines granted to the pool companies by the operating company. This can prevent a pool company from continuously withdrawing or adding liquidity from/to the cash pool. Another sensible idea could be to agree on a credit line for the operating company itself. It is advisable to include specific notice periods in the framework agreement. For example, the participation of a group company in the cash pool ends automatically if insolvency proceedings are opened against its assets or the company leaves the group.

Do you have questions? The BTP expert team will be happy to advise you on the legal requirements relating to cash pooling and the framework agreements.